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Wednesday, 31 December 2014

(Reuters) - The dollar was set to end 2014 with a gain of more than 12 percent against a basket of major currencies on Wednesday, its strongest year in almost a decade and, according to most major banks, just a prelude to a further rise next year.

Some year-end adjustments to market positions have given the yen and the euro respite in thin trading over the Christmas period, but the overwhelming consensus is that the single currency will fall below $1.20 in the first quarter.

This year's gain will be the greenback's largest since 2005, when it climbed nearly 13 percent, and only the third year in 30 in which it has gained more than 10 percent.

The contrast between the U.S. Federal Reserve's path toward rises in interest rates next year and stimulative monetary policies in the euro zone and Japan drove the dollar index to a more than 8-1/2-year high on Tuesday.

"Recent solid data has reinforced the view that the U.S. economy is improving enough for the Federal Reserve to consider raising interest rates in mid-2015," said Kit Juckes, a strategist with French bank Societe Generale in London.

"If the Fed hikes rates (even once), 2-year yields will be a lot higher than this in a year's time and the dollar will be stronger."

The dollar index, which measures its value against a basket of six major currencies, last stood flat at 89.979.

There are lingering doubts. The dollar has come a long way in a hurry and it is not clear whether further gains in the first half of next year might help dissuade the Fed from raising rates.

Many also worry an increasingly turbulent atmosphere in developing markets - and most importantly China - may be a harbinger of worse things to come. Political turmoil that may again threaten Greece's presence in the euro has added to such broader concerns over growth and the balance of the global financial system, prodding investors towards the traditional safety of the yen this week.

Still, the dollar has risen more than 13 percent versus the yen this year and the gains have only accelerated around an election that strengthened the mandate for Prime Minister Shinzo Abe's policy of flooding the market with yen.

For 2015, "if you ask whether the dollar is likely to head in the direction of 100 yen or head toward 130 yen, I think it will be the latter," said Teppei Ino, an analyst for Bank of Tokyo-Mitsubishi UFJ in Singapore.

By 0841, the euro was steady at $1.2155. The yen was 0.14 percent lower at 119.645.

Basic Trading Concepts Defined

The December FOMC meeting indicated that the Fed remained optimistic over the US growth outlook. It maintained the growth outlook unchanged but revised lower the unemployment rate outlook for 2015 and 2016. Headline inflation outlook was revised lowered for this year and 2015. As mentioned in the statement, "economic activity is expanding at a moderate pace" while "underutilization of labor resources continues to diminish". Inflation "has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices". Meanwhile, "market-based measures of inflation compensation have declined somewhat further". Policymakers talked about the recent decline in oil prices in the press conference, indicating that it should have a transitory effect on inflation and would stimulate growth.

While the Fed judged that falling oil prices should fuel US growth, the ECB was concerned that the decline would drive Eurozone's inflation rate below 0%. ECB's Praet suggested that "given the potency of the current oil-price shock, the risk is that inflation may temporarily fall into negative territory in coming months". He added that "any central bank would prefer to look through a positive supply shock. After all, lower oil prices boost real incomes and may lead to higher output in the future. But we may not have that luxury at present". For Japan, the drop in oil prices has also complicated BOJ Governor Kuroda's task of bring inflation back to the +2% target. The selloff in oil prices suggested that it would be challenging for the country's inflation to pick up in the first half of the fiscal year starting in April.

These comments showed that the collapse in oil prices would widen the growing divergence between the Fed's monetary decision and that of other central banks, such as the ECB and the BOJ. Such divergence would accelerate the strength of the US dollar vs other major currencies.

Nymex natural gas future slumped to the lowest level in a year as investors were concerned about over production of the commodity. Mild weather in the Northern hemisphere also curbedl buying interest. The contract for January delivery plummeted to as low as 3.444 on Friday and lost more than -8% on weekly basis. On the contrary, natural gas stock ETF rose along with the US stock market. The DOE/EIA reported that gas inventory dropped for the 5th consecutive week, by -64 bcf, to 3 259 bcf in the week ending December 12. Stocks were +6 bcf higher than the same period last year and -258 bcf below the 5-year average of 3 553 bcf. Separately, Baker Hughes reported that the number of gas rigs slid -8 units to 338 in the week ended December 19. Oil rigs slipped -10 units to 1 536 while miscellaneous rigs stayed unchanged at 1 unit. The total number of rigs dropped -18 units to 1 875. Directionally oriented combined oil, gas, and miscellaneous rigs fell -1 unit to 195, horizontal rigs slid -11 units to 1356 while vertical rigs dropped -6 units to 324.

Reference: Action forex

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China will relax restrictions on banks' yuan trading starting in 2015, in a small but significant move towards relaxing its capital controls.

The changes will replace daily caps on banks' foreign exchange positions with weekly limits, and for the first time establish unified standards for total foreign exchange positions that banks can hold.

The State Administration of Foreign Exchange (SAFE) published a set of new rules on Tuesday to simplify 14 sets of related regulations and add new provisions liberalizing banks' forex trading practices.

"The timing is well chosen," said a senior dealer at a major European bank in Shanghai.

"With the dollar strengthening globally and emerging market currencies suffering from lingering weakness, it is good time to relax restrictions."

The yuan has lost 1.3 percent so far this month and looks set to close the year down 2.8 percent in the face of bearish pressure which is expected to last well into 2015.

Starting from Thursday, SAFE will only check banks' position compliance status each week, according to the new rules published in the regulator's website, www.safe.gov.cn, leaving them leeway to short dollars within that period, traders said.

However, SAFE appeared to discourage this interpretation in its statement.

"While banks manage their positions on a weekly basis, their average daily positions should be kept within the limits defined by SAFE," the regulator said, in what traders said was an apparent signal that banks should not go too far.

While position caps for shorting dollars will remain unchanged, SAFE has published standards for total forex positions that will apply to everyone.

Banks previously needed to apply for quota individually.

All banks with less than $100 million worth of forex settlement business in the previous year will be allowed total positions of $50 million on average by the end of each day in a week, with a maximum short position value of $3 million, according to the new rules.

Those recording a value between $100 million and $1 billion will be granted total positions of $300 million and short positions of $5 million.

Those doing over $1 billion of business can have total positions of $1 billion and short positions of $10 million.

"Those banks that cannot meet their business demand via the above-mentioned positions can apply to the SAFE for additional quotas," the regulator said.

The rules also apply to China-based foreign banks; overseas lenders that have more than one offices in China must appoint one key office to manage the positions, the rules said.

The new rules simplify application procedures for trading status in the foreign exchange market, and ease requirements for banks to exchange the yuan and foreign currencies in their capital reserves.

Reference: Lu Jianxin and Pete Sweeney

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Monday, 29 December 2014

Basic Trading Concepts Defined

THE NEW FUNDAMENTALS: What every long-term investor needs to know to be successful in today's marketplace. The stock market is evolving. In fact, it is in a constant state of evolution as it responds to pressures from various aspects of modern society.

Externally, it is changing because the matrix of Market Participants has changed dramatically in the last decade. Instead of just 3 levels of market participants, as the Dow Theory defined, there are now 9 levels of market participants, each with their own agendas and buying powers, which impact stock prices differently.

Since then, ETFs or Exchange Traded Funds have grown exponentially in popularity and diversity. This is just one example of the evolving stock market of today. ETFs have been around for just about a decade, but the growth of this new industry has seen an explosion that is not yet over. Should you own ETFs? It depends upon your goals.

ETFs offer substantial benefits over Mutual Funds, as you can buy and sell them as easily as you can a stock. Evaluating these funds can be easier than researching a Mutual fund because the return and performance of the ETF is usually provided by the ETF issuer, plus stock indicators can be applied to the chart for study. The best way to determine if an ETF is something to buy for a long-term investment is to study the ETF chart. Below is an example of an ETF chart.

We can see that it came to market in late 2008 and dropped with the market at that time. The company that created the ETF is FirstTrust. It is an index fund of 49 stocks involved in the Wind Energy sector. We can see that it was in a down-trend until 2012 where it began forming a bottom. TSV, a large lot volume indicator, indicates early that the bottom had been reached and institutional investors began accumulating. High Frequency and Institutional traders stepped in and caused more volume to surge in July of 2013.

Institutional investor and trader activity is just one of several New Fundamentals investors need to know and study. The middle indicator is volume, which shows us that more market participants began trading this ETF starting in July 2013. The price chart on top shows that the price of the ETF currently is moving up steadily with a sustainable angle of ascent out of the bottom and will reach some resistance at the 2009 highs. There have been opportunities for investing in this ETF thus far and there may be more opportunities in the future. This kind of technical analysis is one of the ways that we can uncover which market participants are trading at any given time, an important part of the New Fundamentals.

When deciding on individual stocks in which to invest and hold for more than a couple of weeks, you must study the financial condition of the company, but P&E ratios are not leading anymore as they can easily be manipulated to make the ratio more attractive to investors who don't study the relationship between profits and earnings figures for themselves. But fundamental analysis shouldn't stop there. Guidance for the expected performance of a company in coming quarters is also an important New Fundamental for informed, forward-looking investors.

Perhaps the most overlooked New Fundamental of our modern market is the Product Cycle. Product cycle tells you whether the company is going to have revenue growth and whether that growth is going to be accelerating or decelerating, or if the product is nearing market saturation which causes stocks to fall steeply in price. The reason the NASDAQ stock market had such a huge Bear Market in 2000-2002 was because 4 major new industries all reached market saturation at the same time. Market Saturation occurs when 80% of the first-time consumer buyers have bought that product. It is the end of a product's cycle and causes revenues to fall, earnings to drop, eventual lay-offs, and contraction for that business. All businesses experience market saturation at some point.

Long-term investors should be selling their stock as the business' product nears market saturation but, unfortunately, most investors start buying the stock at that point because it has been chosen to be on an index such as the S&P 500 or the Dow. A prime example of what happens to a stock that reaches market saturation is Microsoft. Below is a monthly chart showing the life of MSFT as a publicly traded stock.

You can see that in the early years of its New Technology Product Cycle, it moved up strongly, but in 2000 it reached market saturation and lost half of its value by 2002. It has recovered slightly since then but has yet, after over a decade, to really move well for a long-term investment. If you had bought in 2000 at its high, just as it became part of the Dow 30 Average, you would still be holding a stock worth far less than you paid for it. You want to get into stocks as they are just moving up in the early stages of their new technology's product cycle.

There are currently 5 major New Technologies coming to market that are going to revolutionize modern societies and some of which are currently creating a Great Bull Market. These new technologies are still in the early stages of their product cycles.

The 5 Major New Industries:

Cloud Technology

Biotechnology & Life Sciences

Fuel Cell Industry

Alternative Green Energy Industry

Nanotechnology

Of the five, Cloud Technology is moving most aggressively. To really take advantage of the next generation of growth stocks that will emerge from these new industries, investors need to learn the terminology, technology, and new companies that are creating new products within each of these new industries. This is part of the New Fundamentals you must study to get an edge in today's market.

Instead of waiting until a company is listed on a major index or until it has become a popular household name, an investor should find these stocks early and buy before they have made the huge gains that make them popular.

Summary:

Investing today is a whole new world. If you depend upon the outdated fundamentals of the 20th century, you will miss out on most of the long-term profitability available from stock investing. If you are looking for an edge in our modern market, find out how you can learn the New Fundamentals taught exclusively by TechniTrader

Reuters) - Asian stocks rose on Monday, following fresh gains on Wall Street, while the euro wallowed near 28-month lows versus the dollar on nervousness before a vote in the Greek parliament that could result in snap elections.

Tokyo's Nikkei bucked the trend and slid 1 percent as reports of a suspected Ebola case in Japan spooked a market which had thin trading before the year-end holidays. The index was still on track for about an 8 percent gain on the year.

In Malaysia, shares in AirAsia posted their biggest one-day drop in more than three years after one of its aircraft went missing on its way to Singapore from Indonesia.

Spreadbetters expected a higher open for European bourses, forecasting Britain's FTSE to rise by as much as 0.3 percent at the open, Germany's DAX to gain 0.2 percent and France's CAC to rise 0.6 percent.

The Dow and S&P 500 both closed at record highs on Friday after a broad rally.

On the 2015 outlook for risk assets, investors will concerned about whether the robustness of the U.S. economy will be able to offset signs of slowdown in powerhouse China and the euro zone.

The euro inched up 0.2 percent to $1.2200, not far from its lowest since August 2012, at $1.2165, which was hit the previous week.

Greece faces a vote in parliament later on Monday that will decide whether the country's leading coalition can gather enough votes to elect a president.

If it fails, markets are concerned this may trigger a snap election that could bring the leftwing opposition Syriza party to power and derail an international bailout.

Former European Commissioner Stavros Dimas, the candidate for the leading coalition, needs to garner 180 votes in parliament to become president.

If Dimas is elected, the euro could bounce on relief as Greece can continue negotiations with its creditors, said Masafumi Yamamoto, a market strategist at Praevidentia Strategy in Tokyo.

"On the other hand, the euro could fall towards $1.21 if the 180 votes are not secured, as the market will ponder the risk of the left-wing Syriza party, which is against fiscal reconstruction, taking power after a snap election next year," he said.

Even if the euro does draw relief from the Greek vote, it will still face longer-term downward pressure from prospects of further monetary easing by the European Central Bank next year.

The dollar stood firm at 120.200 yen, remaining in sight of a 7-1/2 year high of 121.86 hit earlier in the month, but lacking enough momentum to challenge that peak. This year, the greenback has risen roughly 15 percent against the yen.

U.S. crude oil rebounded on renewed tensions in Libya.

A fire caused by fighting at one of Libya's main export terminals has destroyed more than two days of the country's oil production, officials said on Sunday, as clashes escalated between factions battling for control of the OPEC member nation.

U.S. crude rose 1.3 percent to $55.44 a barrel after shedding 2 percent on Friday. U.S. crude, which fell to a 5-1/2 year low this year, was on track to fall 43 percent in 2014.

Reference: Shinichi Saoshiro

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Friday, 26 December 2014

(Reuters) - The dollar edged up against the yen on Friday in light bargain-hunting following two sessions of losses, with some markets slowly getting into gear after the Christmas holiday.

Market participants expected it would still take a bit of time for business to resume in full swing, with key markets in the region such Australia, Hong Kong and Singapore closed on Friday. The U.K. market will remain closed on Friday although New York will be open.

After a dip to 120.005 yen the dollar was up 0.1 percent at 120.170 yen, crawling back towards the week's high of 120.800 hit on Tuesday.

A break above that peak would put the greenback in sight of a 7-1/2 year high of 121.860 scaled earlier in the month.

"That the recent drop by the dollar was contained shows that risk sentiment continues to improve. There is no change to our view that the yen will continue to weaken as the recovery in U.S. economic fundamentals, which is at the root of risk appetite, continues to gather pace," said Junichi Ishikawa, a market analyst at IG Securities in Tokyo.

The dollar also took back some ground against the euro after two days on the retreat.

The euro inched down 0.1 percent to $1.2210, edging back towards a 28-month trough of $1.2165 reached on Tuesday in light of robust U.S. GDP data that further boosted prospects for the world's largest economy.

Recently upbeat U.S. economic data has provided evidence that the economy is steadily recovering, and heightened expectations that the U.S. Federal Reserve is on track to eventually hike interest rates in 2015.

That outlook is in sharp contrast to Japan and Europe, where monetary policy is expected to remain loose to stimulate growth and ward off deflation.

Data released on Friday highlighted some of the struggle the Bank of Japan faces. The year-on-year rise in Japan's core consumer prices slowed to 2.7 percent in November from 2.9 percent in October amid the recent decline in crude oil prices.

Widening differentials between U.S. and record-low Japanese yields should favor the dollar as more market participants return from holidays.

The two-year Japanese government bond yield struck a record-low minus 0.04 percent last week, taking the spread versus the two-year U.S. Treasury bill yield to its widest this week in more than four years.

The Australian and New Zealand dollars were little changed after taking a knock earlier in the week from strong U.S. GDP.

In addition to increasingly positive prospects for the U.S. economy, the diminishing premium offered by Australian government bonds over U.S. counterparts has influenced the Australian dollar's 9-percent fall this year.

The Aussie was up 0.1 percent at $0.8123, still within reach of a 4-1/2 year low of $0.8087 plumbed on Tuesday.he kiwi gained 0.1 percent to $0.7738 after dropping to the week's trough of $0.7694 on Tuesday.

Reference: Shinichi Saoshiro

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Thursday, 25 December 2014

Basic Trading Concepts Defined

Introduction

Did you know that you can lose huge sums of money trading Forex, even if you have a profitable Forex trading system? Contrary to what most Forex traders believe, a profitable Forex trading system is not the be all and end all of successfully trading Forex. The secret to keeping your trading account safe and growing your returns exponentially at the same time is the little known practice of Forex trading money management.

What Is Forex Trading Money Management?

Forex trading money management is basically how much you should risk on each trade, and there are many different money management strategies out there. One popular example that you will hear about often is the 2% rule, which states that you should not risk more than 2% of your trading capital on any one trade. Most people get confused with this definition because they confuse margin with risk per trade, so I'll explain it in a different way: if you're using the 2% rule, then you should size your positions in such a way that you will not lose more than 2% of your capital in any given trade. For example, if your stop is 10 pips away, and 2% of your capital is $200, then you should only take 2 contracts (2 Contracts x $10 per pip x 10 pips = $200 risk per trade)

The Limitations Of Traditional Forex Trading Money Management

Most people follow the 2% rule religiously without knowing why they are meant to do it. I personally believe in knowing why I'm doing something before I do it, so researched this thoroughly. Turns out that if you want to minimize the risk of blowing your trading account while maximizing your trading profits in the long run, then you'll want to keep your risk per trade to between 2-4 % of your trading capital. Depending on your own tolerance for risk, you can actually go up to 3% or even 4% to ramp up your profits even further, without greatly increasing your risks.

Profitable Money Management Method

The 2-4% Forex trading money management model is a type of geometric money management technique, and is the most efficient way of growing your capital when trading Forex. Traditionally, people apply Forex trading money management using a fixed contract sizes, which is good for small accounts but not very efficient. The reason why the 2-4% rule is so powerful is because it allows you to apply the power of compounding to your trading. As you gain profits, you reinvest it over and over again, which creates an exponential growth rate in your trading account. I'm sure you'll agree that when it comes to your trading profits, an exponential increase is far better than a linear increase.

The Power Of The 2-4% Rule

There are two ways of applying the 2-4% rule. One is to update your position sizes at the end of regular time intervals, and the other is to update your position sizes at specific profit/loss milestones. Regardless of which method you apply, it's clear that the 2-4% rule is powerful because it creates the fastest and safest growth of your trading account. Obviously, you will need a profitable Forex trading system to apply this Forex trading money management strategy successfully. Once you have these two components in place, then there's really nothing stopping you from creating a consistent Forex passive income that grows and grows over time!

Reference: Ezine articles.

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Basic Trading Concepts Defined

Stop Losses / Profit Targets

The best way to do this is to take 2/3rds of the trade off at the 2-reward level per risk (i.e. twice your stop loss), then trail the other 1/3rd.

For instance, let’s say you are trading the micro account again.

· Enter your trade for 3 micro lots (3,000).

· Place your stop at 80 pips for all 3 micro lots and place your profit target at 160 pips for 2 of your micro lots.

· If you hit your profit target, you have closed out 2/3rds of your position for 160 pips.

· Then move the stop loss up to 80 pips profit and leave the trade alone.

· Every time it increases, move the stop loss up another 80 pips.

Now the maths:

Initially, calculate the average if your position retraces from my profit target and you had moved your stop to 80pips:

(40% x ((160 + 160 + 80) / 3)) – (60% x 80) = 53.34 – 48 = 5.34

Then think about what could happen if you trail your stops higher.

If the trade actually runs up and you get stopped out on the final 1/3rd at 160 pips above your initial target of 160 pips, that’s 320 pips:

(40% x ((160 + 160 + 320) / 3)) – (60% x 80) = 85.34 – 48 = 37.34

You are starting to see how you can quickly increase your average with a few good trades that continue in your initial trade direction.

The final trick to employ, which many people find hard to do, is adding to your position. Say you are in a trade, and that you need to see three moving averages cross in order to go long.

Take your initial long position with 3 micro lots, 80 pip stop, 2/3rds of your trade with a limit order to take profit at the 160 pips, 1/3rd being trailed at the 80 pips mark. If you hit your target at 160 pips, there is a small retracement and you will get another entry signal when the three moving averages cross again.

Obvious

It may seem obvious, but what you need to do is take the trade again, as if you didn’t have a trade in place already. In other words, go long again 3 micro lots and place your stop at 80 pips (still trailing the other stop), your 2 micro lot limit order profit target at 160 pips, and look to trail the final micro lot.

This way, if there is a continued trend, you continue to build a bigger position at a better price (due to averaging of prices), so that when it finally reverses all of the 1/3rds trailing stops that are in the money, and that get stopped out, will be of a considerable size.

Applying these three rules can turn anyone from a losing trader into a great trader. The key is to stop trying to be right, and start trying to be profitable.

(Reuters) - Asian stocks gained and the dollar stood tall on Wednesday thanks to surprisingly robust U.S. economic growth, helping investors head into the Christmas holidays in a more relaxed mood after the global market turbulence of the past two weeks.

Risk appetite was sharpened by from revised data showing the U.S. economy grew at 5.0 percent in the third quarter, the quickest pace in 11 years and the strongest sign yet that growth has decisively shifted into higher gear.

That drove both the Dow .DJI and the S&P 500 .SPX to record closing highs overnight.

"America's strong economy is pushing the dollar up and the yen down, and that's a big plus for Japanese exporters to the U.S.," said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center.

The strong U.S. GDP prompted markets to bring forward the timing of a likely hike in interest rates by the Federal Reserve, which last week gave an upbeat assessment of the economy.

The bullish outlook pushed up Treasury yields and gave an already strong dollar fresh momentum. The two-year U.S. Treasury yield US2YT=RR rose to a high not seen in almost four years in light of raised interest rate expectations.

The greenback fetched 120.320 yen JPY=, edging closer to a 7-1/2 year peak of 121.86 yen touched earlier this month. The euro sank to a fresh 28-month low of $1.2165 EUR=.

"Risk appetite is returning at a faster pace than expected, thanks to the temporary pull-back in Russia risk and a well-balanced statement from the Fed last week," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

However, given thin holiday trading conditions and continued instability in crude oil prices, equities and currencies could be volatile, he said.

The Russian ruble plunged to an all-time low in mid-December on the back of lower oil prices and Western sanctions, which make it almost impossible for Russian firms to borrow from the West.

The ruble has since regained some lost territory, shored up by informal capital control measures designed to head off a repeat of the inflation and protests that marked Russia's 1998 financial crisis.

Weighed by industry data that showed a surprise build in domestic stocks, U.S. crude oil dipped 38 cents to $56.74 a barrel CLc1 after gaining $1.86 overnight on the U.S. growth figures. [O/R]

"It's ironic. The U.S. economy is starting to boom and crude oil prices are contracting in the opposite direction," said Ben Le Brun, market analyst at Sydney's OptionsXpress.

Gold traded close to a three-week low as the improved sentiment dampened investor appetite for the safe-haven metal. [GOL/]

Spot gold XAU= was up 0.3 percent at $1,179.21 an ounce, within distance of the three-week trough of $1,170.17 hit on Monday.

Reference: Shinichi Saoshiro

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Tuesday, 23 December 2014

(Reuters) - A holiday hush settled over Asian markets on Tuesday after Wall Street closed at historic highs while oil prices recouped just a little of the losses suffered when Saudi Arabia quashed all thought of curbing supply.

A revival in risk appetite undermined the safe haven yen and kept the U.S. dollar elevated across the board, while sovereign bonds were content to sit on recent gains.

Equity investors chose to focus on the benefits that falling fuel prices would have for consumer spending power.

"Overall, we see this as a shot in the arm for the global economy," Olivier Blanchard, chief economist at the IMF, and Rabah Arezki, head of the commodities research team, wrote in their blog on Monday.

They estimated the boost to world growth would be between 0.3 and 0.7 percentage points above the Fund's baseline forecast of 3.8 percent in 2015, with the gain to China ranging from 0.4 to 0.7 percentage points.

Trading was light in Asia with Japan on holiday and markets moved only marginally. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.3 percent.

Australian stocks ran into profit-taking after three sessions of sharp gains and slipped 1.0 percent .AXJO.

On Wall Street, the S&P 500 .SPX had put on 0.38 percent to score an all-time closing high on Monday, while the Dow .DJI added 0.87 percent and the Nasdaq .IXIC 0.34 percent.

In Europe, opening gains of between 0.3 percent and 0.5 percent were projected for the FTSE .FTSE, DAX .GDAXI and CAC .FCMI. Stocks have been helped in part by further evidence the European Central Bank was set to buy euro government bonds.

Expectations the ECB will act as soon as January saw the euro touch a 2-1/2 year trough at $1.2215 on Monday and it was last trading at $1.2227 EUR=.

In contrast, the Federal Reserve remains on track to hike rates at some point in 2015 which has widened the premium offered by two-year U.S. debt to 75 basis points over German bunds, the fattest margin since early 2007. US2YT=RR

The attraction of U.S. yields lifted the dollar to 120.12 yen JPY=, leaving last week's 115.56 low as a distant memory. The dollar index .DXY reached its highest since April 2006.

The steady climb in the dollar made life miserable for gold buffs with the precious metal stuck at $1,179.61 XAU=, after falling from $1,201.80 on Monday.

Oil bulls also suffered a cruel blow when Saudi Arabia's powerful oil minister said OPEC would not cut production at any price. Ali al-Naimi said the Saudis might instead boost output to grow market share and that oil "may not" trade at $100 again.

U.S. crude CLc1 edged up 70 cents to $55.93, but remained well short of Monday's $58.53 high. Brent LCOc1 stood at $60.49 having recouped 38 cents of Monday's $1.25 fall.

There was little in the way of Asian data due on Tuesday but a full U.S. calendar includes November durable goods orders, final third-quarter GDP, home prices and inflation. ECONUS

Reference: Wayne Cole

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Monday, 22 December 2014

Basic Trading Concepts Defined

MACD is the very popular Moving Average Convergence Divergence indicator. It is a trend-following indicator developed by Gerald Appel in the 70's, during a very different market than we have today. The theory of MACD is that when two moving averages cross, a significant change of trend in the stock's price is more likely to occur. As with all indicators, the moving average crossover is not a "sure thing" and should not be considered an absolute truth as you trade stocks.

Appel attempted to improve on that concept by using 3 Exponential Moving Averages to form 2 indicator lines. What MACD does is it plots the point spread between 2 different Exponential Moving Averages-a slower and a faster one. This is the first line. Then, a second Exponential Moving Average is plotted against the first. This is very similar to Stochastic. It can also be plotted as a histogram or bars, like Volume and Balance of Power are commonly used.

MACD was originally designed for long-term investing not short-term trading, although short-term traders have attempted to adopt it for such use. It is frequently misused and often misunderstood. Its popularity is its own worst enemy, as it is relatively easy for large lot traders to trade against the masses of retail traders using it.

Note: If you have been trading for a long time, you have probably used this indicator. You may even consider it an excellent indicator for stocks. It is important for every trader to understand both the drawbacks and rewards of any indicator or strategy.

Professional technical market analysts agree that MACD requires experience and judgment to use as Appel intended. Gerald Appel doesn't recommend its use as a purely mechanical indicator. Unfortunately, it has been made extremely popular for average traders and investors by several charting software programs that use it for that purpose. Most professional technical analysts agree that MACD's primary problems are that it frequently whipsaws and it lags price action in stocks. Testing by experts over a 72-year period shows that it is barely better than the buy-and-hold method for long-term investing. On the short side, experts determined that trading profits would have been cut by 84% using MACD for entry and exit signals. This is based upon the MetaStock testing rules for MACD.

Because MACD is merely a group of moving averages, which are inherently lagging, this indicator lags more current indicators such as Accumulation/Distribution indicators and Volume Accumulation oscillators. It seldom indicates a buy signal until after the stock has already moved significantly. MACD is also known to produce many whipsaw signals, especially in choppy and sideways markets. This is a common trait of trend-following indicators.

Above, MACD gives a crossover signal too late. A candlestick entry signal was confirmed with the Volume Accumulation Oscillator, Time Segmented Volume, at the start of a nice swing style run up in price. But MACD did not cross over until a couple days later. This kind of lag time cannot be afforded by swing, momentum, and day traders. Today we have a very dynamic, energetic, and often volatile market that is dominated by institutional traders who do swing trading, day trading, selling short, hedging and more. It is important to watch indicators that follow their large lot activity and that are designed to help reveal their buying and selling patterns.

Most importantly though, it is critical that you use indicators for what they were intended to do. MACD is best used for long -term analysis to determine whether a trend is intact. By itself, it is not ideal for short-term traders who cannot afford to be a day or two late on an entry or exit and who need to avoid whipsaws whenever possible. Therefore, short-term traders are advised to consider other indicators instead of or in addition to MACD.

(Reuters) - The euro probed fresh two-year lows early on Monday in a subdued start to a holiday-shortened week, extending a multi-month trend of weakness against the dollar that many traders say will remain intact in the new year.

Speculation is high that the European Central Bank (ECB) will be forced to expand its asset-buying program to include sovereign debt in early 2015, at a time when the Federal Reserve is preparing to do the opposite and lift interest rates.

The common currency has fallen about 11 percent so far this year. It last traded at $1.2230, having touched $1.2220 early in the session, a low not seen since August 2012.

The euro slipped to 146.17 yen, holding well off a six-year high of 149.79 set early in the month.

ECB governing council member Luc Coene said in a newspaper interview on Saturday that the bank should start buying government bonds to tackle poor investor confidence and low inflation in the euro zone.

His comments came as Vice President Vitor Constancio reiterated that the bank would, in early 2015, assess the effectiveness of measures it had already taken.

Constancio said the ECB must act if inflation was too low to maintain its credibility and would need to use channels it had not tried before.

"We think extremely low euro area December inflation will support our call for further ECB easing through the announcement of European government bond purchases at its 22 January meeting," analysts at Barclay wrote in a note to clients.

That would provide a catalyst for further euro/dollar depreciation next year, they said, adding the recent break lower has opened up targets around 1.2100 and 1.2040.

In addition, the currency was dogged by uncertainties on Greece, which could face an early election if its parliament fails to elect a president with a three-fifths majority.

Prime Minister Antonis Samaras, whose party is trailing behind anti-bailout Syriza Party in opinion polls, failed to win less votes than expected in the first round of voting last week, not boding well for two remaining rounds of voting, planned on Dec. 23 and Dec. 29.

"The markets may be quiet for now due to holidays but Greek vote on Dec. 29 could really shake things up," said a trader at a Japanese bank.

With the euro on the defensive, the dollar index held within striking distance of a near nine-year peak of 89.645 set on Friday.

As investors expect the Federal Reserve to raise rates for the first time since the global financial crisis in 2008, the dollar index also rose above its post-crisis peak of 89.624 marked in March 2009.

Still, the index could face a strong resistance at 90, with some analysts concerned that the dollar's excessive strength could reinforce disinflationary pressure in the United States.

Against the yen, the greenback bought 119.43, climbing back towards a 7-1/2 year high of 121.86 and away from a 115.56 trough plumbed last week.

The Australian dollar was becalmed at $0.8144, having slumped to a 4-1/2 year low of $0.8107 last week.

The lackluster start was in sharp contrast to the wild swings in risk appetite last week sparked in part by a currency meltdown in Russia and persistent weakness in oil prices.

Reassuring words from the Fed on Wednesday, which said it would not raise interest rates in the next couple of meetings, have since restored some semblance of calm.

Traders, many of whom have already closed their books for the year, said thin market conditions could lead to further choppy action in the next couple of weeks.

Reference: Ian Chua and Hideyuki Sano

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Friday, 19 December 2014

Basic Trading Concepts Defined

Being Right And Early Means You Are Wrong

In FX, successful directional trades not only need to be right in analysis, but they also need to be right in timing as well. If the price action moves against you, even if the reasons for your trade remain valid, trust your eyes, respect the market and take a modest stop. In the currency market, being right and being early is the same as being wrong. Consider a scenario where a trader takes a short position during a rally in anticipation of a turnaround. The rally continues for longer than anticipated, so the trader exits early and takes a loss - only to find that the rally eventually did turn around and their original position could have been profitable.

Differentiate Between Scaling In And Adding To A Loser

The difference between adding to a loser and scaling in is your initial intent before you place the trade. Adding to a losing position that has gone beyond the point of your original risk is the wrong way to trade. There are, however, times when adding to a losing position is the right way to trade. For example, if your ultimate goal is to buy a 100,000 lot, and you establish a position in clips of 10,000 lots to get a better average price, this type of strategy is known as scaling in.

What Is Mathematically Optimal Is Psychologically Impossible

Novice traders who first approach the markets will often design very elegant, very profitable strategies that appear to generate millions of dollars on a computer backtest. Armed with such stellar research, these newbies fund their FX trading accounts and promptly proceed to lose all of their money. Why? Because trading is not logical but psychological in nature, and emotion will always overwhelm the intellect in the end. Conventional wisdom in the markets is that traders should always trade with a 2:1 reward-to-risk ratio, the trader can be wrong 6.5 times out of 10 and still make money. In practice this is quite difficult to achieve.

Risk Can Be Predetermined; Reward Is Unpredictable

Before entering every trade, you must know your pain threshold. You need to figure out what the worst-case scenario is and place your stop based on a monetary or technical level. Every trade, no matter how certain you are of its outcome, is an educated guess. Nothing is certain in trading. Reward, on the other hand, is unknown. When a currency moves, the move can be huge or small. To learn more on why you need a plan, see The Importance Of A Profit/Loss Plan.

No Excuses, Ever

The "no excuses" rule is applicable to those times when the trader does not understand the price action of the markets. For example, if you are short a currency because you anticipate negative fundamental news and that news occurs, but the currency rallies instead, you must get out right away. If you do not understand what is going on in the market, it is always better to step aside and not trade. That way, you will not have to come up with excuses for why you blew up your account. It's acceptable to sustain a drawdown of 10% if it was the result of five consecutive losing trades that were stopped out at a 2% loss each. However, it is inexcusable to lose 10% on one trade because the trader refused to cut his losses.

(Reuters) - The safe-haven yen was on the back foot on Friday, as risk assets staged a broad recovery and investors awaited a press conference by the head of the Bank of Japan after the central bank held policy steady.

The dollar added about 0.4 percent against the yen to buy 119.27 yen JPY=, while the euro rose about 0.3 percent to 146.44 yen EURJPY=.

"The focus still remains on broader risk appetite, the continued fall in commodity prices, in particular oil, and the divergent monetary policies of the major central banks," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.

The BOJ kept monetary settings unchanged, as widely expected, at the end of its two-day meeting on Friday and offered a more upbeat view on the economy, signalling that no immediate expansion of stimulus was on the horizon.

BOJ Governor Haruhiko Kuroda will hold a news conference at 3:30 p.m. (01:30 a.m. EST) to explain the policy decision. He will likely repeat calls for firms to increase wages, as well as urge Prime Minister Shinzo Abe to press ahead with fiscal and structural reforms.

Investors will be particularly interested in anything Kuroda says about the yen and oil prices, Sean Callow, a currency strategist at Westpac, said in a note.

Diverging monetary policy between the U.S. and Japan are expected to continue bolstering the dollar against the yen, as Japan keeps its stimulus in place and the U.S. Federal Reserve gears up for an eventual tightening.

On Wednesday, the Fed removed its pledge to keep rates near zero for a "considerable time," signalling its confidence in the U.S. economic recovery and keeping it on the path to hike interest rates in 2015.

The Fed's stance fuelled gains in U.S. stocks, giving the S&P 500 its best two-day advance in three years, which in turn helped lift Asian shares.

The Swiss franc, which plunged on Thursday after Switzerland's central bank surprised by imposing negative interest rates on deposits, stabilized at 0.9810 franc CHF= against the dollar, up about 0.1 percent on the day.

The euro EUR= edged down against the dollarto $1.2279.

French President Francois Hollande said on Friday that he would like to see the euro weaker against the dollar but added that the exchange rate was rapidly approaching a point of balance.

Hollande was attending a meeting of European Union leaders in Brussels, where they endorsed a new investment programme intended to kick-start economic growth in the bloc.

The U.S. dollar index .DXY, which tracks the greenbackagainst a basket of six major currencies, edged up about 0.1 percent on the day to 89.288, within sight of the Dec. 8 high of 89.550, a five-year peak.

Thursday, 18 December 2014

IBM aims to expand the number of data centers it offers clients around the world by 25 percent to meet fast-rising demand for internet-based services, after what a company executive said has been a "breakthrough year" in 2014 for its cloud computing business.

IBM has quadrupled the number of cloud data facilities it offers around the world to 49 in the past 18 months, responding in part to laws requiring the local retention of data following revelations over U.S. government Web surveillance as well as increased corporate compliance rules.

The company said on Wednesday it has now struck a partnership with data center provider Equinix Inc for nine more cloud centers in Australia, France, Japan, Singapore, The Netherlands and the United States.

In addition the company is opening up three new cloud computer facilities of its own in Germany, Mexico and Japan.

The information technology giant, which is contending with a change in its classic business mix of software and outsourcing services as corporate clients focus on reaching their customers via the Internet and mobile phones, said its own cloud business is having a banner year.

"We have had a really good year. We would call it a breakthrough year in cloud," Angel Luiz Diaz, vice president in charge of IBM's cloud computing business, told Reuters.

IBM's cloud revenue amounted to $4.4 billion in 2013 and was up by 50 percent in the first nine months of this year, it reported in October, making it one of IBM's fastest-growing businesses, although it still accounts for only a fraction of the $94 billion in total revenues which IBM is expected by analysts to generate this year.

Diaz declined to comment on the company's performance during the fourth quarter but IBM has announced multi-year deals in recent weeks worth a total of more than $4 billion that are fuelling the company's expansion in data centers.

The company's cloud computing services let companies mix classic computing jobs with new ways of working, a twist on the largely consumer-facing cloud services made popular by Amazon's Web Services, Google and Microsoft.

IBM, along with rivals Hewlett-Packard and EMC's VMware, offer “hybrid cloud” services that let customers run key business data on private, internal networks along with consumer-facing public cloud systems.

Such hybrids provide companies with certain speed, security and regulatory advantages but at similar costs as public clouds, said industry analyst Charles King of the firm Pund-IT. Mixed systems also let customers move their existing business software to the Internet over several years rather than in one big leap.

So far this quarter IBM has set major deals with airline Lufthansa, Dutch bank ABN AMRO, advertising giant WPP, audio electronics maker Woox Innovations in Hong Kong and the Dow Water arm of Dow Chemical.

IBM has also put in place a variety of technology partnership deals with SAP, Microsoft, Tencent, AT&T and Intel to give its customers more flexibility in running other major business systems on IBM cloud networks.

IBM also said on Wednesday it had reached a cloud services deal with National Express Group Plc to enable the UK-based bus and trains operator to offer commuters up-to-the-minute train schedules and what it said would be Britain's first postcode-to-postcode journey planner.

Reference: Eric Auchard

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Basic Trading Concepts Defined

Trading Is An Art, Not A Science

The systems and ideas presented here stem from years of observation of price action in this market and provide high probability approaches to trading both trend and countertrend setups, but they are by no means a surefire guarantee of success. No trade setup is ever 100% accurate. Therefore, no rule in trading is ever absolute (except the one about always using stops!). Nevertheless, these 10 rules work well across a variety of market environments, and will help to keep you out of harm's way.

Never Let A Winner Turn Into A Loser

The FX markets can move fast, with gains turning into losses in a matter of minutes, making it critical to properly manage your capital. There is nothing worse than watching your trade be up 30 points one minute, only to see it completely reverse a short while later and take out your stop 40 points lower. You can protect your profits by using trailing stops and trading more than one lot. For more on this, see Trailing Stop Techniques

Logic Wins; Impulse Kills

It can be a huge rush when a trader is on a winning streak, but just one bad loss can make the same trader give all of the profits and trading capital back to the market. Reason always trumps impulse because logically focused traders will know how to limit their losses, while impulsive traders are never more than one trade away from total bankruptcy. To get a better understanding of traders, read Understanding Investor Behavior

Never Risk More Than 2% Per Trade

This is the most common and most violated rule in trading. Trading books are littered with stories of traders losing one, two, even five years' worth of profits in a single trade gone terribly wrong. By setting a 2% stop-loss for each trade, you would have to sustain 10 consecutive losing trades in a row to lose 20% of your account. For more read The Stop Loss Order - Make Sure You Use It and Limiting Losses.

Use Both Technical And Fundamental Analysis

Both methods are important and have a hand in impacting price action. Fundamentals are good at dictating the broad themes in the market that can last for weeks months or even years. Technicals can change quickly and are useful for identifying specific entry and exit levels. A rule of thumb is to trigger fundamentally and enter and exit technically. For example, if the market is fundamentally a dollar-positive environment, we'd technically look for opportunties to buy on dips rather than sell on rallies.

Always Pair Strong With Weak

When a strong army is positioned against a weak army, the odds are heavily skewed toward the strong army winning. This is the way you should approach trading. When we trade currencies, we are always dealing in pairs - every trade involves buying one currency and shorting another. Because strength and weakness can last for some time as economic trends evolve, pairing the strong with the weak currency is one of the best ways for traders to gain an edge in the currency market.

(Reuters) - Asian share markets rallied on Thursday after U.S. stocks enjoyed their strongest session this year when the Federal Reserve sounded upbeat on the economy and promised to be patient in removing policy stimulus.

The jitters of recent days also calmed a touch as Russia managed to stabilize its rouble, if only for now, and oil prices stopped plunging. As risk aversion ebbed, U.S. bond yields rose and the dollar regained some lost ground.

Wall Street had rebounded after three days of declines after the Fed said it would adopt a "patient" approach to raising interest rates. [TOP/CEN]

Equity investors seemed content that any move would be cautious and drove the Dow .DJI up 1.69 percent. The S&P 500 .SPX gained 2.04 percent and the Nasdaq .IXIC 2.12 percent.

Bond investors were less enthused as some had thought the downward spiral in oil combined with low inflation, economic weakness globally and the Russian financial crisis would lead the Fed to push out the likely timing of the first hike.

Instead, Fed Chair Janet Yellen played down the impact of oil and falling inflation expectations, while most policy members still expected hikes to start in 2015.

As a result, Treasuries erased an early rally and yields on two-year paper jumped 10 basis points from the day's trough to stand at 0.617 percent US2YT=RR.

Still, longer-term yields remain low historically, as do market based measures of expected inflation. Data out on Wednesday showed consumer prices fell 0.3 percent in November, the biggest drop in six months, as fuel costs fell.

As a result, investors continue to wager that any tightening will proceed at a snail's pace. Fed fund futures <0#FF:> currently imply a rate of 0.56 percent by the end of 2015, while the median forecast by Fed members is 1.125 percent.

The rise in yields was enough to revive U.S. dollar bulls after a few days of caution and the currency climbed to 118.50 yen JPY= from a low of 116.29 on Wednesday.

The euro retreated to $1.2340 EUR=, after being as high as $1.2515 at one stage on Wednesday, while the U.S. dollar index gained 1 percent for the day .DXY.

The single currency also took a hit when European Central Bank board member Benoit Coeure said there was support on the bank's policymaking council for more action, with sovereign bond purchases the "baseline option".

In commodity markets, oil prices were steadier after some wild swings this week. U.S. crude CLc1 was quoted 25 cents lower at $56.23 having bounced as far as $58.98 on Wednesday.

Brent LCOc1 dipped just 5 cents to $61.13, but had been as high as $68.71 at one stage on Wednesday.

Reference: Wayne Cole

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Wednesday, 17 December 2014

The Forex (FX) market has many similarities to the stock market, but there are some key differences.

Choosing a Broker

There are many forex brokers to choose from, just as in any other market. Here are some things to look for:

Look for low spreads. The spread, calculated in pips, is the difference between the price at which a currency can be purchased and the price at which it can be sold at any given point in time. Forex brokers don't charge a commission, so this difference is how they make money. In comparing brokers, you will find that the difference in spreads in forex is as great as the difference in commissions in the stock arena.

Make sure your broker is backed by a quality institution.Unlike stock brokers, forex brokers are usually tied to large banks or lending institutions because of the large amounts of capital required to provide the necessary leverage for their customers (more on leverage in a moment). Also, forex brokers should be registered with the Futures Commission Merchant (FCM) and regulated by the Commodity Futures Trading Commission (CFTC). You can find this and other financial information and statistics about a forex brokerage on its website or on the website of its parent company.

Find a broker who will give you what you need to succeed

Forex brokers offer many different trading platforms for their clients - just like brokers in other markets. These trading platforms often feature real-time charts, tools to analyze these charts, real-time news and data, and even support for trading systems themselves. Before committing to any broker, be sure to request free trials to test different trading platforms. Find a broker who will give you what you need to succeed!

Get the right account type

Many brokers offer two or more types of accounts. The smallest account is known as a mini account and requires you to trade with a minimum of, say, $250, offering a high amount of leverage (which you need in order to make money with so little down). The standard account lets you trade at a variety of different leverages, but it requires a minimum initial investment of around $2,000. Finally, premium accounts, which often require significant amounts of capital, let you use different amounts of leverage and often offer additional tools and services. Make sure the broker you choose has the right leverage, tools, and services relative to the amount of money you are prepared to invest. (For more, see Forex Basics: Setting Up An Account.)

Things to Avoid

Sniping or Hunting.Sniping and hunting - or prematurely buying or selling near preset points - are shady acts committed by brokers to increase profits. Obviously, no broker admits to committing these acts. Unfortunately, the only way to determine which brokers do this is to talk to fellow traders; there is no blacklist or organization that reports such activity. Talk to others in person or visit online discussion forums to find out who is an honest broker.

Strict Margin Rules

When you are trading with borrowed money, your broker has a say in how much risk you take. As such, your broker can buy or sell at its discretion, which can be a bad thing for you. Let's say you have a margin account, and your position takes a dive before rebounding to all-time highs. Well, even if you have enough cash to cover, some brokers will liquidate your position on a margin call at that low. This action on their part can cost you dearly.

Homework

Talk to others in person or visit online discussion forums to find honest brokers. Signing up for a forex account is much the same as getting an equity account. The only major difference is that, for forex accounts, you are required to sign a margin agreement. This agreement states that you are trading with borrowed money, and, as such, the brokerage has the right to interfere with your trades to protect its interests. Once you sign up, simply fund your account, and you'll be ready to trade!

In Europe, the FTSE .FTSE is seen opening down 0.9 percent, the DAX .GDAXI 1.2 percent and the CAC .FCHI 1.6 percent.

The stakes were all the greater as the U.S. Federal Reserve's last policy meeting of the year could well see it drop a commitment to keeping rates low for a "considerable period".

That would be taken as a step toward raising interest rates, even as growth in the rest of the world sputters and falling commodity prices add to the danger of disinflation.

A new wrinkle was the risk of financial contagion spreading from Russia where an emergency hike in interest rates failed to stop the ruble's descent to new lows.

It was quoted around 68.00 to the dollar RUB=EBS having been as far as 80.00 at one stage on Tuesday as speculation mounted that Moscow will have to tighten further or perhaps impose capital controls.

The urge to close leveraged positions caused collateral damage to the dollar as investors had been very long of the currency in anticipation of further gains, and helped the euro up to $1.2510 EUR=.

The rush from risk tended to benefit the safe haven yen, with the dollar back at 116.79 JPY= having been atop 118.00 on Tuesday. The commodity linked Australian dollar also took a dive to a five-year trough of $0.8157 AUD=D4.

A year-end dearth of liquidity was leading to wild moves in even the most staid of assets. The oil-exposed Norwegian crown NOK= for instance, hit an all time low by one measure on Tuesday after carving out the widest daily trading range since the global financial crisis.

"The combination of the rouble crisis and poor liquidity broadly resulted in a period of total dysfunction across global FX and rate markets," reported analysts at Citi.

MORE SPENDING, LESS INFLATION

On Wall Street, the Dow .DJI had shed early gains to end Tuesday down 0.65 percent, while the S&P 500 .SPX lost 0.85 percent and the Nasdaq .IXIC 1.24 percent.

There was no respite for oil as Brent leaked another 66 cents to $59.35 a barrel LCOc1 in Asia on Wednesday, while U.S. crude lost $1.12 to $54.81 CLc1.

On the face of it, the downward spiral in oil should be good news as it effectively acts as a tax cut for consumers world wide. JPMorgan estimates the boost to spending could add 0.4 percentage points to global growth over 2015.

But a halving of fuel costs is also a force for disinflation in a world where the supply of goods already exceeds demand.

Data out of the UK showed inflation had ebbed to its slowest in 12 years in November, arguing strongly against the need for early rate rises from the Bank of England.

The Fed still seems keen to start raising U.S. rates by mid-2015. However, with inflation still well below its 2 percent target and likely to dip further as fuel prices fall, investors are wagering that any hike will only add to the disinflationary impulse in the economy.

A key market measure of inflation expectations for the next five years USIL5YF5Y=R has been falling fast since August and hit new lows at 2.37 percent on Tuesday.

Likewise, yields on 30-year Treasury bonds US30YT=RR touched their lowest since late 2012 at 2.67 percent as investors priced out the risk of higher inflation

Tuesday, 16 December 2014

Basic Trading Concepts Defined

Retirement plan

America’s increasing reliance on 401(k)s and other defined-contribution retirement accounts is something of a double-edged sword. On the one hand, because investors (not pension managers) decide how the funds are invested they have more control over the funds they’ll need during their later years.

But gone are the days when most investors can count on a predictable income stream from a defined-benefit pension once their career comes to an end. If the market takes a wrong turn at the wrong time, it could mean losing years of hard-earned savings.

When it comes to long-term investing, a degree of cautiousness can be a virtue. Those who plan for the next bear market before it arrives are in a better position to absorb the shock and maintain their current lifestyle.

Here’s what you can do now to protect your nest egg from the inevitable volatility of the market.

Maintain the Right Portfolio Mix

The single most important thing you can do to mitigate risk is to diversify your portfolio. Some investors believe having their savings in a mutual fund means they’re in good shape. Unfortunately, it’s not quite that simple.

There are two key types of diversification that every investor should employ. The first is asset allocation. That’s the amount of each asset class – whether it be stocks, bonds or “cash equivalents” like money market funds – you own.

As a general rule, you want to lessen your exposure to riskier holdings (e.g. small-cap stocks) as you get closer to retirement. These securities tend to be more volatile than high-grade bonds or money market funds, so they can put investors in a bigger hole when the economy goes south. Older adults, unlike younger workers, simply don’t have enough time to wait for a recovery when stocks take a hit. (See An Introduction To Small Cap Stocks.)

That’s why it’s important to work with a financial advisor and determine the asset allocation that best fits your age and investment objectives. Because asset categories will grow or decline at different rates over time, it’s a good idea to periodically rebalance your account to keep the allocation consistent.

Say you own a portfolio with 55% of the holdings in stock and 45% in bonds. Suppose that stocks had a great year and, because of these gains, they now comprise 60% of your account. Rebalancing means selling some of the stocks and buying enough bonds to maintain your overall risk profile.

The other type of diversification happens within each asset category. If 50% of your portfolio is dedicated to stocks, look for a nice balance between large- and small-cap stocks and between growth- and value-oriented funds. Most advisors suggest having some exposure to international funds as well, in part because it cushions the blow of a U.S. economic slump.

Keep in mind that not all bonds are created equal. For example, the debt of companies with a low credit rating – known as “junk bonds” – is more closely correlated to stock market performance than high-grade bonds. Therefore the latter are a better counterweight to the stocks in your account.

The goal is to have a proper mix of assets that historically don’t rise or fall at exactly the same time (see The Role Of Rebalancing).

Have Some Cash on Hand

Those who are already retired have to maintain a delicate balancing act. To protect against outliving their assets, most financial planners suggest holding onto at least some stocks (see Is '100 Minus Your Age' Outdated?).

At the same time, retirees need to be more cautious about their investments because they don’t have the long time horizon that younger investors do. As a safeguard against economic slumps, some investment professionals suggest keeping up to five years' worth of expenses in cash or cash equivalents, such as short-term bonds, certificates of deposit and Treasury bills.

If you’re worried that the rate of inflation will grow and eat away at your purchasing power, consider having some of your “cash equivalents” in the form of Treasury Inflation-Protected Securities, or TIPS. While the interest rate on these securities is fixed, the par value increases with the Consumer Price Index. So if the rate of inflation hits 4% annually, your investment grows right along with it.

Be Disciplined About Withdrawals

Simply put, the more money you have squirreled away, the better position you’ll be in should a bear market arise. This may sound simple, but too many retirees overspend in retirement, which leads to poor investment decisions that are made out of desperation.

The antidote: discipline in your spending habits. Most experts suggest withdrawing no more than 3% to 5% of your funds in year one of retirement in order to maintain a sustainable lifestyle. From there, you can adjust your annual withdrawal to keep pace with inflation. So if you determine that you can take out $2,000 a month in the first year and consumer prices rise 3% annually, your allotment would grow to $2,060 by year two. For details, see Strategies For Withdrawing Retirement Income.

By planning your withdrawal allowance, you eliminate the need to liquidate a large sum of assets at fire-sale prices simply to pay the bills.

Don’t Let Emotions Take Over

If there’s one tendency to avoid when saving for retirement, it’s impulsiveness. When stocks take a plunge, it’s tempting to try to cut your losses by selling shares. But most of the time, investors choose to act after the downturn is well underway.

You’re better off staying the course when things are rough. If you’re rebalancing your nest egg on a regular basis, that means you may actually buy more stock when the market’s down to keep your allocation in check. By purchasing at a low – or near the low – you’re poised to maximize profits when the market eventually rebounds.

It’s equally important to have a steady hand when the economy is humming along. If you’re still saving for retirement, resist the urge to cut back when your 401(k) is exceeding expectations. The market will always have ups as well as downs. Those who are ahead of expectations prior to a bear market will invariably have an easier time handling the fallout.

The Bottom Line

By its nature, the economy will always experience boom and bust cycles. Investors who take a disciplined approach and diversify their portfolio are almost always in a better position when the next bear market arises.

Trade Like a Top Hedge Fund

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(Reuters) - Activity in China's factory sector contracted in December for the first time in seven months, the latest in a string of weak economic indicators that will intensify calls for more stimulus measures to head off a hard landing.

The flash HSBC/Markit manufacturing purchasing managers' index(PMI) fell to 49.5 in December from November's final reading of 50.0 and below the 50.0 forecast by analysts.

The new orders sub-index fell to 49.6, the first contraction since April. A reading below 50 indicates contraction, while one above 50 points to expansion on a monthly basis.

"The manufacturing slowdown continues in December and points to a weak ending for 2014," Hongbin Qu, chief economist for China at HSBC, said after the survey was released on Tuesday.

However, while economists have continued to call for more easing, others question whether another round of easy credit is what China needs, given the country is still struggling to work off a mountain of bad debt and manufacturing overcapacity engendered by the last round of policy easing in 2009.

"We expect policymakers to respond to the continued weakness with further rate cuts and liquidity injections," wrote Julian Evans-Pritchard at Capital Economics in Singapore.

"That said, we think that those expecting a policy-driven rebound in growth next year will be disappointed."

Economists have noted that a surprise interest rate cut by the central bank on Nov. 21 has yet to result in lower financing costs, although the cut, combined with a quiet relaxation of loan restrictions beginning in October, did appear to have translated into a surge in loans in November.

TWO-SPEED ECONOMY?

While manufacturing has been weak, weighed down by a cooling property market, tight credit conditions and erratic exports, China's services sector has proved more resilient.

Other data released on Tuesday showed cumulative foreign direct investment posted a mild recovery in November after four straight months of decline, with investment in services growing even as investment in manufacturing declined.

The transition to services is a key policy goal, which would help restructure China's economy toward a more labour-intensive and less investment-intensive model that is seen as more sustainable and more in line with other advanced economies.

But for the same reason, service industries are less responsive to credit easing than manufacturers; firms don't hire more lawyers or programmers just because interest rates are low.

Thus some economists question whether the China's deepening economic malaise, in which weak customer demand is seen as playing a major role, will respond to a liquidity injection, or whether the cash will simply flow into low-yielding infrastructure projects, speculative ventures in real estate or into a stock market that has rallied heavily on borrowed money.

REVISING TARGETS

China's top leaders said last week that they will try to sustain reasonable growth in 2015 even though the economy faces "relatively big downward pressure".

They are preparing to revise their estimate of 2013 gross domestic product (GDP) growth after adjusting the way the figure is measured.

The head of the National Bureau of Statistics said on Tuesday that the new methodology would revise up the size of the economy in 2013 by around 3 percent, without giving details. The new number will be published on Dec. 19.

However, the rise in historical measurement is not seen as providing a basis for more optimism about present conditions.

"I don’t think they will change the main assessment of the current economic situation," said Zhu Haibin, chief China economist at JPMorgan in Hong Kong. "If they revise up, that means growth in the past several years will also be higher and the slowdown trend is still there."

The economy is expected to grow 7.4 percent this year, its slowest pace in nearly a quarter of a century, and cool further to 7.1 percent in 2015, according to a Reuters poll.

Monday, 15 December 2014

Strategies in scalping need not differ substantially from other short-term methods. On the other hand, there are particular price patterns and configurations where scalping is more profitable. We’ll examine and study them in depth in this section.

c. Trend Scalping: Here we’ll take a general look at forex scalping in trending markets.

This article is part of our guide on how to use scalping techniques to trade forex. If you haven't already we recommend you read the first part of our series on forex scalping.

Scalping in two different ways

It is possible to think of scalping in two different ways. In one approach, the trader is concerned purely with the slow price fluctuations that occur in a short period of time, and uses technical methods to trade them. In the other approach the scalper can also be a trend follower, or a swing trader, but he uses very small, fast trades as a rule. The latter approach tells the trader to exploit rapid and sharp price movements, while maintaining an eye on the overall market direction in order to control risk exposure. The first approach, on the other hand, requires that the trader benefit from slow, and small price movements which go nowhere: while the price is moving slowly up and down, it will generally return to where it left, and it is possible to trade it without taking great risks.

In this section we’ll take a look at both approaches. We’ll discuss the pure scalping approach in the context of ranging markets where volatility is the main method for generating profits. We’ll also examine the combined approach while studying the subject of scalping with the Fibonacci extensions in trending markets. Let’s note here that technical strategies that can be applied in day, or swing trading are equally valid in scalping as well, and that there’s no difference (apart from the role of the spread) between a 5-minute or 5-month chart as far as analysis is concerned. The reader is invited to read about technical indicators and strategies here.

Psychology and scalping

Before going on further and discussing the details of the subject, however, we wish to say a few words on the psychological aspect of scalping. As we mentioned before, scalping is an emotionally intense activity where the trader must keep calm nerves in the face all kinds of unexpected events. Clearly, overcoming these issues and maintaining a consistent and disciplined approach to trading is a precondition to achieving any kind of profit in the forex market. So how does the trader achieve this necessary degree of emotional restraint and composure?

People remain calm and composed in conditions with which they are familiar and knowledgeable about. Most of us are disturbed if a car makes a sudden movement, but are not bothered while an airplane is taking off with great momentum and speed. Similarly, the same person can perceive anxiety by a small unexpected cut on a finger, yet feel relatively composed while heading to the hospital in order to be operated on by a surgeon. In other words, our emotional responses to risky activities and disturbing conditions are not entirely dependent on the nature of what is being experienced, but more on what is being perceived by us.

Minimize unnecessary risk

As such, in order to be successful a scalper must accustom himself to market conditions in such a way that losses and profits in the markets are expected and acceptable. We need to convince ourselves, and teach that there is no danger, so that we can trade with confidence. Needless to say, if there are real causes for concern, fear is appropriate. If we are risking more than we should, taking too much leverage, or don’t know what we are doing, we’ll feel nervous, timid, and insecure about our trading decisions. In that case, the first step is ensuring that we are not taking unnecessary risks. It is difficult for scared money to profit, and even more so in scalping, therefore, we need eliminate the logical causes of fear from our practice.

Start with small sums

If after removing such causes we still feel nervous and worried about what we are doing, it is necessary to take additional steps to deal with the causes of our irrational perceptions. These steps should involve the automation of our tactics. The suggestion for scalpers is to begin this learning process with very small sums which are then increased and combined as experience allows greater, healthier returns. Since at the earliest stages the purpose is not to make profits, but gaining experience, small accounts with minimal leverage are necessary. There is very little point in worrying about a small loss if by realizing it we are gaining important lessons about what should and should not be done in the markets. By being accustomed to difficult market conditions which accompany scalping in the markets, we can prepare ourselves for the ultimate challenge of trading significant sums in the forex market. As we like to say, no body can leap to the top of a mountain or a skyscraper, but by climbing on rocks, or using the stairs many people are capable of realizing such an seemingly impossible deed.